Asset-based lending (“ABL”) has historically been considered a systematic form of secured credit. In an ABL deal, a borrower’s availability corresponds to collateral value, and the borrowing base is the mechanism through which the parties determine availability at any given time. Credit agreements present availability as a simple formula: eligible accounts receivable and inventory (and in some cases other collateral types) multiplied by applicable advance rates, minus applicable reserves. The implication is that if a borrower can calculate its borrowing base, it can predict liquidity.
In today’s market, that picture is incomplete. Many ABL facilities still begin with the familiar formula, but day-to-day management of availability often depends less on stated definitions and more on what lenders learn in real time. “Permitted Discretion”, reserves, field exams, appraisals, and operational overlays increasingly determine the amount a borrower can actually borrow. The borrowing base has evolved from a purely formulaic construct into a dynamic risk management tool, and the gap between what the legal documents say and what happens in practice matters for everyone involved.
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"The Modern Borrowing Base: What the Documents Say and What Actually Happens," by Tyler W. Mullen was published in July/August 2026 edition of The Secured Lender.